Mon, Nov 05, 2007 - Page 8 News List

Editorial: Fuel market needs competition

Motorists are really feeling the pinch. With global crude oil prices reaching more than US$90 per barrel last month and topping US$96 last week, fuel prices are being felt worldwide.

After price hikes on Friday, Formosa Petrochemical Corp's (FPC) and CPC Corp, Taiwan's (CPC) product prices are now more than NT$30 a liter.

This situation is not just a matter of how serious inflationary concerns will become, but is a reminder of why sufficient competition is badly needed in the nation's gasoline retail market.

So far this year, domestic gasoline and diesel oil prices have risen by 11.5 percent and 16 percent year-on-year after the state-run CPC raised prices 17 times and cut them 13 times.

According to a Citigroup forecast, an increase of US$10 per barrel in global crude oil prices could push Taiwan's consumer price index (CPI) growth rate up by 0.5 percentage points. At the same time, it would undercut the nation's private consumption growth rate by 0.6 percentage points and trim the economic growth rate by 0.2 percentage points.

Keeping in mind such potential consequences, it is understandable why the government would try hard to prevent CPC from significantly raising prices. The government can do so as long as the state-owned company can serve as an important tool to help stabilize commodity prices.

It is regretful, however, that surging fuel prices has also become a political debate ahead of next year's legislative and presidential elections, with politicians from both sides making a huge fuss over whether to shelve the floating pricing mechanism and freeze fuel prices.

But a key question is how long will the public accept the two refiners' price-fixing. CPC and FPC have allegedly colluded in a market that has basically become a duopoly since the withdrawal of ExxonMobil Corp from Taiwan in 2003.

When ExxonMobil joined the retail business through Esso Petroleum Taiwan in 2002, it provided brief but real competition. The government began to liberalize the retail market in 2000, allowing competition and imposing taxes on petroleum products. But the high tariffs on imported oil products and high security stockpiles required by the authorities led ExxonMobil to pull out of the market.

To break the dominance of CPC and FPC, the government and the legislature have to amend the Petroleum Management Law (石油管理法) to provide better incentives for companies to import fuel products. Consumers will be the biggest beneficiaries of a more competitive market. That's what the government could do to help realize an old saying that it could "return benefits to the people."

Democratic Progressive Party presidential candidate Frank Hsieh's (謝長廷) citing of another old saying -- that the government must "care for the people like patients and feel their pain" -- and his suggestion that the government temporarily freeze fuel prices would only delay the inevitable.

The real question is whether the government and the legislature understand the CPC-FPC duopoly and are willing and able to construct a more competitive market?

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